Flashcards in Chapter 13 - Managing Demand and Capacity Deck (33):
Overuse or underuse can directly widen what gap?
Gap 3: failure to deliver what was designed and specified
What is the underlying issue to meeting capacity with service organizations?
Lack of inventory capability due to perishability and simultaneous production and consumption
What are the 4 basic scenarios that can result from different combinations of capacity and demand?
1. Excess Demand
(demand exceeds capacity, some business will be turned away, and the ones not turned away may have less quality)
2. Demand Exceeds optimum capacity
(so no one is turned away, but quality of service may suffer because of overuse, crowding, or staff being pushed too far)
3. Demand and supply balanced at level of optimal capacity
(Staff and facilities are occupied at an ideal level. Nobody overworked, facilities maintained, quality service etc)
4. Excess Capacity
(Demand below optimal capacity. resources not used, customers may get good service but be disappointed or uneasy of lack of other customers)
So if you have narrow fluctuations of demand but find that peak demand is regularly exceeding capacity, what can you do?
Like we talked about in previous chapters, a one time fix may be necessary to be able to accommodate
What are the 4 main constrains on capacity? Give at least two types of service examples for each
(such as with legal, consulting, medical)
(ad agency, law firm, consulting firm, health clinic)
(Delivery service, gyms, haircutters)
(hotels, restaurants, hospitals, airlines)
Usually a combination of these
How is time a constraint on capacity?
well for example, if I bill myself as Pielot Comm, then I don't manage my time effectively. It's going to be hard to fit in more demand. Or I may just not have the time
What is the difference between optimal and maximum use of time?
So optimal is when best quality is achieved by meeting demand and supply, whereas maximum is the absolute max demand it can fit.
So at a Lady Gaga concert optimum and maximum may be same, cause you want a full sold out house. But in a classroom you don't want the lecture hall completely jammed to the brim of students, or you don't want to have a huge class size because of quality instruction.
How do you chart demand patterns?
You chart demand patterns using customer information systems or informally.
So Cucina tracking movement through the door for time intervals is an example so that we can see when more staff is needed at one seasonal times
If you can identify a predictable cycle of demand, what should you do?
Find out underlying cause, so tax accountants know that tax season is going to be high demand!
How should Random Demand fluctuations treated by managers?
Well, even these need to be identified as an underlying cause. So maybe it's due to the weather, or truly random such as 9/11 on relief services
What are 3 main demand patterns?
1. Predictable Cycles
(So high subway demand at beginning and end of work day)
2. Random Demand Fluctuations
(Patterns of demand appear to be random)
3. Demand Patterns by Market Segment
(Can buy data, or many businesses notice this such as commercial accounts coming in at set time at bank, whereas personal is seemingly random)
What are the two general approaches for matching capacity and demand?
1. Shifting demand to match existing capacity
2. Adjust capacity to match demand
How can you shift demand to match existing capacity?
So get customers to come during non-busy period rather than busy.
What are 5 ways you can shift demand to match existing capacity when demand is too high?
So to reduce demand during peak times:
1. Communicate busy days and times to customers
2. Modify timing and location of service delivery
3. Offer incentives for non peak usage
4. Set priorities by taking care of loyal vip customers first
5. Charge full price for service, no discounts
What are 4 ways you can shift demand to match existing capacity when demand is too low?
So to increase demand to match capacity:
1. Educate customers about peak times, and benefits of non peak use
2. Vary how the facility is used
3. Vary service offering
4. Differentiate the price
What are 5 ways you can adjust capacity to match demand when demand is too high?
So to increase capacity temporarily:
1. Stretch people, facilities and equipment temporarily
2. Use part-time employees
3. Cross-train employees
4. Outsource activities
5. Rent or share facilities and equipment
What are 4 ways you can adjust capacity to match demand when demand is too low?
So to adjust use of resources when demand is low:
1. Schedule downtime during periods of low demand
2. Perform maintenance and renovations
3. Schedule vacations and employee training strategically
4. Modify or move facilities and equipment
What is yield management? (it does something with 4 things)
1. capacity utilization
3. market segmentation
4. financial return
So really it aims to do things such as match potential demand with fixed capacity of service provider such as seats on a plane to maximize revenue or yield.
Also called Revenue Management
For yield management, what is the underlying effectiveness measure?
(1 main formula, 2 others that make that one up)
Yield = Actual Revenue / Potential Revenue
Actual Revenue = Actual Capacity Used x Avg Actual Price
Potential Revenue = Total Capacity x Max Price
Traditional yield management approaches are most appropriate for services when they have what 7 characteristics?
1. Relatively Fixed Capacity
2. Perishable Inventory
3. Have different market segments who use service at different times
4. Have low marginal sales costs and high marginal capacity change costs
5. Product is sold in advance
6. There is fluctuating demand
7. Customers who arrive or reserve early are more price sensitive than those who arrive or reserve late
These exactly fit airlines, car rental agencies, hotels etc
What are the 5 challenges and risks in using yield management?
1. Loss of competitive Focus
(overfocus on profits, neglect long term competitive success)
2. Customer Alienation
(Customers may not like paying higher price for service than others just for being in busy period)
(Used to make yield management work such as with Air Canada, this can dissatisfy customers if denied on flight)
4. Incompatible Incentive and Reward Systems
(Employees may resent yield management systems that do not match incentive structures)
5. Inappropriate Organization of the yield management function
(Need to have centralized reservation system such as with Hotel or airline, smaller organizations might not have this)
For customers feeling alienated about paying more certain times using yield management, how should business educate them?
Should frame it as discount during slow times, instead of premium during peak times
What are the 4 strategies to deal effectively with the inevitability of customers waiting for service?
1. Employ Operational Logic
(Remove any inefficiencies, such as Marriott Hotels express checkout or kiosk at Halifax INTL, or make queuing better)
2. Establish a reservation process
3. Differentiate Waiting Customers
4. Make waiting more pleasurable
What is queue configuration? Give me 3
Refers to number of queues, their locations, and spatial requirements, and effect on customer behaviour.
1. Multiple Queue
(Like Grocery Store, go to cashier with smallest line)
2. Single Queue
(Like Winners, stand in line that sends you off to next available cashier)
3. Take a number
(like a clinic or blood lab)
What is queue discipline?
Finding out priority of customers and then servicing them first
What are the 4 factors that differentiation of waiting customers can be based on?
1. Importance of customer
(frequent or elite get priority service/lines)
2. Urgency of the Job
(most urgent need served first, such as emergency room)
3. Duration of the service transaction
(Express lanes, so if you have small bank thing go to teller or atm, large is different etc)
4. Payment of a premium price
(so pay for first class, you get first class line and go first)
What are 8 things that make waiting less pleasurable and that can be fixed?
1. Unoccupied time feels longer than occupied
(doing stuff passes time)
2. Preprocess waits feel longer than in-process waits
(So reading menu, or physician getting ready, etc. Good when normal service, bad during service failure)
3. Anxiety Makes waits seem longer
(Put a goldfish in the waiting room, or say wait time)
4. Uncertain waits are longer than known, finite waits
(If you have appt you'll be patient till time, but after time you don't know wait and grow very anxious)
5. Unexplained waits are longer than explained waits
6. unfair waits are longer than equitable waits
7. The more valuable the service, longer customer will wait
8. Solo waits feel longer than group waits
Demand strategies seek to do what?
flatten the peaks and valleys of demand to match the flat capacity constraint
Capacity strategies seek to do what?
Align, flex, or stretch capacity to match the peaks and valleys of demand
Essentially, what does yield management do?
It allows organizations to decide on monthly, weekly, daily, or even hourly basis to whom they want to sell their service capacity and at what price.
So it only really works for firms that are capacity-constrained in which bookings are made in advance such as airlines
For businesses with narrow extent of demand fluctuations over time and where peak demand regularly exceeds capacity, what is the problem?
This just means they don't have the baseline capacity to support business
What two things can you do to employ operational logic?
1. Modify OPerations
2. Adjust queuing System